OBR: UC poses ‘significant risk’ to public spending control

The introduction of universal credit poses a “significant risk” to public spending control, the Office of Budget Responsibility has warned.

In its Welfare Trends report, the OBR said its estimate of the impact of the roll-out of the new benefits system on welfare spending was subject to many forecast, modelling, behavioural and policy risks, “compounded by the lack of reliable information on how UC is affecting welfare spending today”.

Although UC – which rolls six benefits into one - was estimated to have a relative small overall impact on public spending, this masked large changes where any unforeseen event could overturn predictions.

The report said the existing systems would cost £63.2bn were they maintained in 2022-23, and UC would reduce that by only £1.0bn.

It found: “But this small saving is the net effect of £10.7bn of gross savings and £9.6bn of gross costs.

“If any errors predicting these gross savings and costs add to rather than offset each other we could see large errors in the forecast for overall spending.”

The OBR noted that although cuts meant UC was now forecast to deliver a modest saving, the system had been designed originally on the basis of spending more.

It warned: “A welfare reform of this scale and nature is also a huge forecasting challenge and a source of significant risk to the Treasury in terms of public spending control.”

The OBR said UC looked simpler than existing systems to administer – with only the Department for Work & Pensions and the Northern Ireland Department of Communities involved - but “the prospective reach of UC, the number of factors that determine eligibility, the conditions attached to it and the nature of the transition make it very challenging for DWP to deliver and for us to forecast”.

David Finch, senior economic analyst at the Resolution Foundation, said: “The report confirms that on average UC will be less generous than the system it replaces because of significant cuts to the new benefit.

“The government should revisit this given the living standards pressure on low and middle income households in the years ahead.”

A DWP spokesperson said: “People on universal credit are finding work faster than those on the old system, staying in it for longer, and keeping more of what they earn. And working parents can get up to 85% of their childcare costs back.”

The DWP said UC’s controversial provision of paying benefits to claimants – removing the present offer to pay housing benefits direct to landlords - “supports people who are out of work and it encourages people to manage their money month-to-month, just like they would in work.

“In the long-term, it will help deliver a welfare system that is sustainable for those who use it and fair to taxpayers who fund it.”

2015 Public Finance. Public Finance is published on behalf of the Chartered Institute of Public Finance and Accountancy by Redactive Publishing Ltd. All rights reserved. Reproduction of any part is not allowed without written permission. Redactive, 17-18 Britton Street, London, EC1M 5TP